Canada: Inflation drops to lowest level since February 2021 in August
Latest reading: Inflation eased to 2.0% in August, following July’s 2.5%. August’s reading represented the lowest inflation rate since February 2021 and was at the midpoint of the Central Bank’s 1.0%–3.0% target range. The reading was also below market expectations. The fall in inflation was primarily driven by a softer rise in prices for housing and a quicker fall in transport prices, the latter likely linked to the drop-off in oil prices during the month.
Annual average inflation fell to 2.9% in August (July: 3.1%). Meanwhile, core inflation fell to 1.5% in August from the previous month’s 1.7%.
Finally, consumer prices fell 0.19% over the previous month in August, swinging from July’s 0.43% rise. August’s result marked the weakest reading since December 2023.
Panelist insight: On the reading and monetary policy implications, TD Economics’ James Orlando said:
“Inflation excluding shelter is growing at a paltry 0.5% y/y. This exemplifies how still high interest rates have weighed on the Canadian economy and slowed the pace of growth. Inflation continues to validate the need for the Bank of Canada to continue cutting its policy rate. We calculate that the current policy rate is still nearly 200 basis points above where it should be based on the current state of the economy. And that is after 75 bps in cuts over the last few months.”